British American Tobacco South Africa (BAT South Africa) has reduced its staff by nearly one-third since 2019, which it blames mostly on the continuing availability of illicit cigarettes in the country.
The group announced yesterday that it had begun talks with staff about another restructuring that might result in 200 job losses.
“BAT South Africa’s cigarette volume loss (40% since 2019) is almost entirely as a result of the continued impact of the growth in illicit cigarette trade in the country, and the unconstitutional ban on cigarette sales implemented during the national Covid-19 lockdown in 2020,” a company spokesperson said in a statement.
The 2020 tobacco sales ban resulted in sharp growth of the illicit market, which has continued even after the ban on tobacco sales was lifted.
The SA Revenue Service (Sars) does seizure operations of illicit cigarettes. The South Africa Tobacco Transformation Alliance (SATTA) late last year cited Sars statistics that showed 1 150 seizures by Customs and Excise in the 2020/21 financial year, equating to 181 million cigarettes with an estimated value of R219 million, as well as R92 182 of seized tobacco. SATTA could not be reached for further comment yesterday.
However, these do little to curb the proliferation of illicit cigarettes in South Africa. In October, an Ipsos survey of 4 593 nationwide retail stores showed that more than 77% of the stores in the Western Cape; 72.3% in the Free State; and and 66.2% in Gauteng sold cigarettes below the Minimum Collectible Tax (MCT), indicating that the manufacturers of these cigarettes could not have paid all due taxes.
MCT is calculated at R22.79, made up of R19.82 excise tax plus 15% VAT. It does not include production costs, nor profit for the manufacturer. Cigarette packs that sell for less than the MCT are considered illegal, as this means the manufacturer is unlikely to have paid the minimum amount of excise duty and VAT due to Sars.
BAT South Africa said yesterday that in 2019 it had permanently employed around 1 800 highly qualified staff across its local operations. Since 2020 however, it had been forced to retrench “more than 30% of our workforce", the company said yesterday.
BAT South Africa said that while it applauded recent efforts by Sars and law enforcement agencies, stronger action was needed as the current approach had not stopped the growth of illicit cigarettes.
“Sars has issued important new policies, but now it is time to audit manufacturer policy compliance. A minimum retail price is also required to support law enforcement agencies and increase their effectiveness,” the company said.
BAT Africa estimates were that the illicit cigarette trade accounted for up to 70% of South Africa’s total cigarette market.
This amounts to a “potential prejudice in duties and VAT estimated at over R163 million”, according to Sars – which shows, if nothing else, the massive harm caused to the economy by the illicit tobacco networks.
Of course, no-one can ignore the harm caused to our entire value chain by the illicit traders. Many farmers have gone out of business and many more are in financial jeopardy, because of the increased market share of the illicit sector since the start of the Covid-19 lockdowns, BAT Africa said.
“In this regard, we strongly endorse the warning issued by Sars in terms of the damage caused by illicit goods, and tobacco products in particular,” it said.
Sars said in its media statement this week, that illicit goods:
∎ Reduce the revenue the country collects, which is needed to provide basic services to all South Africans including the poor and vulnerable.
∎ Destroy local industries, leading to factory closures, job losses and further erosion of the tax base.
∎ Contribute to higher levels of criminality, including bribery and corruption as well as drawing the country into various syndicates of organised crime, drug-smuggling, gun-running, and human trafficking.
“Although these developments are a step in the right direction, we have to caution that it is still only a drop in the ocean, and much more is required to stem the tide and make a meaningful impact. The reality is that Sars is losing around R1.5 billion per month in taxes, which is devastating to Sars and the legal industry,” BAT Africa said.
“SATTA will continue to engage with Sars on other steps to curb illicit cigarette products. We are particularly keen to see the ringleaders behind bars,” it said.
“SATTA’s members go about their business in a law-abiding way and pay their taxes, and it distresses us that the tobacco industry continues to be undermined by the illicit traders, whose identities are well-known to Sars and the law enforcement authorities.
“They are taking food from our mouths and killing our business.
“We also repeat our call for a commission of inquiry into the activities of these criminal networks and pledge our full support,” BAT Africa said.
In afternoon trade yesterday the share was up 0.98% at R651.37.
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